“We will increase the number of bonds we issue going
forward,” Maersk Chief Financial Officer Trond Westlie said
yesterday in an interview in Copenhagen. “We’re a company that
mainly deals in dollars so it makes a lot of sense for us to be
able to issue dollar bonds. The credit rating gives us access to
the dollar market and gives us lower funding costs in general.”

Yields on Maersk bonds plunged to their lowest in more than
a year yesterday after Denmark’s biggest company hired Moody’s
Investors Service and Standard & Poor’s to grade its debt.
Moody’s assigned the company a Baa1 rating, while S&P gave
Maersk’s bonds a similar BBB+ grade. Both ratings carry stable
outlooks.

Maersk’s shipping unit, a bellwether for global trade
demand, reported rising profits last month and raised its full-year forecast as cost cuts countered a decline in freight rates.
The company is adjusting to five years of overcapacity after a
boom in ship orders collided with the global financial crisis,
triggering a record slump in freight demand. Chief Executive
Officer Nils Smedegaard Andersen has said a U.S. recovery will
support the shipping industry as European demand remains weak.

Being Opportunistic

Maersk’s plan to focus on dollar bonds will still leave
space for debt sales in other currencies, depending on where the
company can get the best financial result, Westlie said.

“We will be opportunistic when we issue and will consider
all the currencies we can,” he said.

The yield on Maersk’s 500 million-euro ($675 million) 4.375
percent bond due 2017 sank to 1.66 percent yesterday, driving
the bond to its highest price since it was first sold in
November 2010, according to data compiled by Bloomberg. The
spread relative to the interpolated government curve narrowed to
109 basis points from 139 basis points a day earlier. The yield
fell to 1.63 percent today.

Though Danske Bank A/S (DANSKE) and SEB AB give Maersk an A- shadow
rating, Westlie said the company is “comfortable” with the
grades it received at S&P and Moody’s. “It’s not uncommon that
actual ratings are one step lower than shadow ratings,” he
said.

Buy Recommendation

Danske Bank is advising clients to buy Maersk bonds after
the ratings were assigned.

“We expect the bonds to tighten further due to the
inclusion in various indices and the fact that the bonds will
now be accessible to investors that have not been able to invest
in unrated names,” Danske analysts Brian Boersting and Jakob Magnussen said in a note. “Our view is supported by the solid
financial metrics for the current BBB+ rating, and potential
upward rating pressure on an 18-24 month horizon.”

Maersk said Aug. 16 that costs declined 12.7 percent last
quarter at its container shipping unit, which transports about
15 percent of the world’s seaborne trade. In the first quarter,
unit costs dropped 7.1 percent. Maersk Line reported a doubling
of second-quarter net income to 2.5 billion kroner ($452
million) even as revenue declined 10 percent.

The company’s “very competitive cost base” will boost
earnings over the next three years, Goldman Sachs Group Inc.
said in a note this month as it recommended investors buy Maersk
shares. The stock has gained about 22 percent this year.

Beating Governments

Maersk’s 2017 note has returned 2 percent this year,
compared with a 1.4 percent loss on Danish government bonds
maturing in three to five years. Similar-maturity German notes
lost 0.5 percent in the period.

Maersk’s net interest-bearing debt declined to 76.7 billion
kroner at the end of June from 91.7 billion kroner a year
earlier, according to the Aug. 16 report. The company, which
also owns an oil unit, a drilling division and a supermarket
chain, said liquidity reserves, which include undrawn revolving
credit facilities and cash, rose to 81.4 billion kroner from
61.8 billion kroner over the same period.

Bonds make up about 28 percent of Maersk’s gross debt, CFO
Westlie said. “That ratio will now go up, but I can’t give a
specific percentage for next year or the year after,” he said.

Maersk, which in 2009 entered the debt market with a
strategy to issue one new bond every year, has nine notes
outstanding, denominated in British pounds, euros, Norwegian
kroner and Swedish kronor.